Internal Control Questionnaire

University of San Carlos School of Business and Economics Department of Accountancy

AC 528 Assignment

Submitted to: Mrs. Grace Socorro arcena !omo

Submitted by: Balisacan" Sarah M. Dadan#" $amela Gay u%ano" Mary Claire D. Melendres" &aren 'oy M. (racoy" Blesilda

 'uly )*+,

Revenue

Customer Order 1. Are policies policies and procedure procedures s for acceptin accepting g and approving approving customer customer orders clearly dened? •

 -he sales process be#ins hen a customer contacts the company/s sales0 customer order department typically throu#h telephone" mail" a report by the 1rm/s sales representative or if the customer is also a business entity" a copy of their purchase order. Since most of these orders do not come in standardi%ed forms reco#ni%ed by the company" the auditor must ensure that albeit unstandardi%ed" the orders come from valid e2istin# and potential customers detailin# the description

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and 3uantity of product product intended to be bou#ht. 4n practi practice ce some some compan companies ies alread already y employ employ the use use of ED4 her here e customer sales are automatically received and entered into the seller5s acco accoun unti tin# n# info inform rmat atio ion n syst system em and and if it comp compli lies es ith ith comp compan any y policies" policies" a sales sales order order ill automaticall automatically y be proces processed. sed. -he auditor auditor must test the e6ectiveness of the ED4 system to ma7e sure customer orders are not arbitrarily accepted and processed.

2. Are prenumber prenumbered ed sales orders orders prepared prepared for all approved approved customer customer orders? •

(nce customer orders are appropriately approved" a sales order must immediately be prepared. -he standardi%ed sales order must contain updated and correct information information on the customer/s number" name" and address8 and the name" number and description of items sold8 the 3uantities and unit prices of each item sold 9as ell as their total sales value8 and other 1nancial information such as ta2es" discounts and frei#ht char#es. $renumberin# sales orders allos transactions to be identi1ed uni3uely hich facilitates verifyin# 1nancial data and tracin# tran transa sact ctio ions ns.. 4t help helps s loca locate te miss missin in# # docu docume ment nts s hic hich h have have the the poss possib ibil ilit ity y of not not bein# ein# acco accoun unte ted d for for. 4t sh shou ould ld be note noted d that that prenumberin# must be supplemented by its preprintin#. Sales 4nvoice numbers must be preprinted on the source document itself and not included in the items to be manually 1lled up.

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Credit chec7in# must be assi#ned to a department independent of the sales processin# in order to ensure that only valid orders are approved and processed.

. !s current informati information on regarding regarding prices" prices" policies policies on discoun discounts" ts" sales" sales" ta#es" $arranties" and returned goods available and communicated to Customer Order personnel? •

Update Updated d infor informat mation ion on 3uanti 3uantity ty and descri descripti ption on of items items on hand hand must periodically be transmitted by the arehouse" production and purchases department 9as applicable to the Customer (rder function in order to assi#n a reliable initial estimate of the amounts related to the accounts a6ected by the sales transactions. 4n particular" sales discounts must be clearly delineated in the sales order and invoice to prevent the Billin# department from billin# amounts in e2cess of actual receivable to further prevent any misappropriation of a portion of the amount actually paid by the customer.

%. Are copies copies of sales sales orders for$arded for$arded to Credit" &'ipping" and (illing? (illing? •

;or ;orar ardin din# # copies copies of sales sales order orders s to Credi Credit" t" Shipp Shippin# in# and Bil Billin lin# # provides for the inte#ration and reconciliation of information therein and actio actions ns ta7en ta7en by each each depar departme tment. nt. -his -his also also ensur ensures es that that the the particular sales order has been appropriately authori%ed because of the approval of the credit department" that the order has been shipped and delivered 9thereby e6ectively transferrin# onership thereof and

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that hat has been shipped has already been billed. 4n particular" the shippin# department" upon receipt of #oods from the arehouse but before loadin# the #oods for shippin# must reconcile the physical items ith the pac7in# slip" shippin# notice and stoc7 release. -he Billin# department must only initiate the billin# process upon receipt of shippin# notice to ensure all billed #oods have actually

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been previously shipped. 4n practice" especially in an ED4 environment" Advance Shippin#
Credit

1. Are

policies

for

approving

credit

establis'ed

and

clearly

communicated to Credit Collections personnel? •

 -he credit department should understand that Credit Authori%ation process must be independent and physically se#re#ated from the sales function. (therise" e2istin# and 1ctitious customer orders ill arbitrarily processed. Most importantly" 1rm/s credit policies must alays be ta7en into consideration in performin# such functions so it/s important that all the credit personnel is familiar ith established 1rm/s credit policies.

2. !s credit investigated before approval? •


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approval of credit department. An important policy for acceptin# and processin# customer orders is to conduct Credit Chec7. -he e2tent of the chec7 should consider the terms = conditions of the sale. A #enerated sales invoice must be supported ith appropriate documents so as to prevent the Sales $rocessin# personnel from processin# 1ctitious orders. ;or instance" upon receipt of a ra customer order" it must be forarded 1rst to the Credit department for purposes of chec7in# credit limit 9for an e2istin# customer

by

e2aminin#

the

database

containin#

the

desired

information = investi#ation of credit standin# and performance 9for 1rst>time customers by solicitin# e2ternal 1nancial and credit reports and #eneratin# on credit analysis. (nce an approved sales order is produced by the credit department" it is important to verify that the si#nature of the authori%ed personnel is contained in the said document" that the approval as in accordance ith the appropriate credit policy and that these policies as embodied in the credit policy •

handboo7 is chec7ed for e6ectiveness and current applicability. By performin# analytical procedures such as computation

and

e2aminin# past and current 1nancial and other ratios" the auditor must atch for ne" unusual or lar#e ne customers that appear to have not #one throu#h the customer>approval process. Moreover" if accounts receivable appears to be too hi#h or is increasin# at a fast rate" this may si#nal that customer accounts are easily approved thus leavin#

the less creditable customers names/ on the list of outstandin# accounts receivable.

. As Credit personnel independent of (illing" Cas' Collection" and Accounting personnel? •

4n the process of approvin# credit for initiation of the sale transaction and approvin# ma2imum alloable sale return" the Credit function must be se#re#ated from the Billin# 9hich is in direct contact ith the customers" Cash Collection 9to avoid appropriatin# amounts that should have been considered reductions in receivables and A? subsidiary from inappropriately recordin# cash receipts as discounts.

%. !s information about past due accounts communicated to Credit personnel? •

Credit personnel must alays update itself from chan#es in 1nancial condition and capacity of e2istin# and potential customers so that only customers

ith

#ood

current

1nancial

standin#

are

approved

purchases on account. 4f credit department does not timely ad@ust customer information" account sales may increase ithout any potential increases in cash ino and possibly unusually hi#h amounts of Bad Debts E2pense.

&'ipping 1. Are goods s'ipped only in accordance $it' approved sales orders? •

 -he shippin# department ultimately travels the #oods to customers thus #oods shipped must alays correspond to the e2act speci1cations of the customers as delineated in the approved sales order. -hey must ship #oods only upon receipt and veri1cation of pac7in# slip" shippin# notice and approved sales order from receive order function. -he inspection of items and documents before actual shipment is a very important control point because errors have the opportunity of bein#

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detected.  -he shippin# department must also prepare and 7eep a copy of a bill of  ladin# to establish its accountability re#ardin# #oods shipped.

2. Are s'ipping documents prepared for all s'ipments?

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Shipments represent the establishment of the ri#hts of the company to bill and collect payments from customers. -hus copies of shippin# notice and bill of ladin# must be prepared and 7ept to provide proof of  actual shipment. (therise claims a#ainst customers may not be honored. But to#ether ith these documents" the stoc7 release copy of  the sales order comin# from the arehouse must be e2amined for correspondence ith the information contained in the shippin# notice hich serves as proof of actual outo and delivery of products.

. !s access to !nventory Control restricted so t'at goods are released only in accordance $it' approved sales orders? •

 -he shippin# and inventory control functions must be separated so that all shipped #oods are #uaranteed to be in accordance ith approved sales orders. Moreover" the arehouse personnel must only pic7 #oods after receipt of a stoc7 release from the receive order function. -he order must be veri1ed for accuracy and #oods and veri1ed stoc7 release forarded to the shippin# department.

%. Are &'ipping personnel independent of billing" cas' collection" and recording? •

 -o avoid shippin# to 1ctitious customers and appropriation of cash receipts" the shippin# department must be physically se#re#ated from the billin#" cash collection and recordin# functions.

(illing and Recording 1. Are prenumbered sales invoices prepared for all s'ipped goods? •

Sales invoices must be prenumbered in order to identify each customer order as a separate transaction. -hese prenumbered invoices must be matched and reconciled to its correspondin# prenumbered shippin# notice. (therise complaints for unreceived but billed #oods by the customers and disa#reement ith accountin# records ill be very dicult to trac7.

2. Are sales invoices matc'ed $it' approved sales orders and s'ipping documents" and are t'ey c'ec)ed for clerical accuracy?

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Shipment of #oods si#nals the consummation of the sale transaction. ?evenue can no be appropriately reco#ni%ed" measured and claimed from the customers. -he Billin# department must see to it that sales invoices are only prepared upon veri1cation of the details in the supportin# documents 9i.e. approved sales order and shippin# notice. $articularly" upon receipt of initial approved sales order after credit is approved" the Billin# department 7eeps records of speci1cations of the customer orders such as the 3uantity" description and e2pected price of the product alon# ith related frei#ht" ta2es" handlin# and other costs. (nce shippin# notice is received from the shippin# department" the actual unit prices" unit 3uantities and desciption of the items must be veri1ed and added to the approved sales order hich serves as the basis for preparin# the sales invoice.

. Are prenumbered credit memos matc'ed $it' receiving reports" and are t'ey recorded promptly? •

hen items are returned" the receivin# department veri1es the details of the return" prepares a return slip and #enerally prepares the credit memo 9assumin# amounts are still ithin his authority. -hese documents are sent to the Billin# department in order to reverse the transaction. 4t is orth notin# that both the credit memo and return slip must be prenumbered to ensure proper and authori%ed recordin# of 

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reductions in customer account balances and sales amounts.  -he return of items must immediately be recorded in order to update a6ected #eneral led#er accounts and to better serve customers by promptly informin# them of any chan#es in their outstandin# account balances.

%. !s t'e accounts receivable subsidiary ledger reconciled periodically $it' t'e general ledger? •

$eriodically" individual account balances are summari%ed in a report and sent to the #eneral led#er. Any additions 9i.e. increase in sales to and reductions 9 i.e. sales returns from customer balances must be veri1ed and promptly recorded in the A? subsidiary led#er to be communicated directly to the G department.

5. Are

mont'ly

statements

revie$ed

and

mailed

by

personnel

independent of Accounts Receivable and Cas' Receipts? •

$referably" an independent Mail ?oom cler7 must be hired to perform mailin# functions re#ardin# customer billin#s and remittances. Since Accounts ?eceivable and Cash ?eceipts handle to incompatible functions 9i.e. record 7eepin# and asset custody" these to must strictly be se#re#ated hence the employment of a separate Mail ?oom function. (therise" a fraud scheme called lappin# could e2ist. 4f the personnel ho handles cash 9cashier and the personnel ho records cash

collections

and

accounts

receivable

subsidiary

led#er

9boo77eeper are one and the same person" chances are #reater that payment from customers may be intercepted and recordin# be delayed until payment from another customer is received. -his process continues inde1nitely. oever this can be minimi%ed if not eliminated •

by 9) forcin# rotation of duties and 9) forced ta7in# of vacation.  -o prevent -he A? subsidiary personnel from recordin# cash receipts as sales returns" the mail room cler7 must revie and note cash receipts and remittances advices as a#ainst the related billin# statements. But in no case shall the mail room cler7 handle the cash received. Chec7s must be immediately sent to cash receipts department.

*urc'asing 1. Are policies and procedures for revie$ing and processing purc'ase re+uisition clearly dened? $olicies li7e authori%ation before the processin# of the purchase •

re3uisition should be clearly de1ned. -he 4nventory Control should #ive this authori%ation only hen necessary li7e hen the inventory levels

drop belo the predetermined reorder points. -he authori%ation is evidenced by the si#nature of the authori%ed personnel of the 4nventory Control on the purchase re3uisition. ithout these policies" there is a hi#h ris7 of e2cess or shorta#e of inventories because purchasin# a#ents could purchase henever they ant. $urchase re3uisition is very important because it provides evidence that the purchasin# department as authori%ed to initiate a purchase. 4t indicates the re3uester" describes the items and speci1es the 3uantity needed. 4t is a prenumbered document ori#inatin# from an operatin# department or the inventory stoc7room hich indicates to the

2. Are

purchasin# department that #oods should be ordered. prenumbered purc'ase orders prepared for

all

approved

purc'ase re+uisitions? ;or all the approved purchase re3uisitions" purchase orders should be •

prepared. -hey must be prenumbered as a proof to the completeness assertion and they contain the description" 3uantity and related information for the #oods and services the company intends to purchase. -he purchase order is used to determine if the #oods or services procured have been authori%ed. -he purchase order should contain the si#nature of the employee from the $urchasin# ho authori%ed the purchase from a vendor. -he use of purchase orders for the recordin# of the ac3uisitions precludes the employees to order #oods for their personal use. ;urthermore" it ill be used as basis for the correctness of the 3uantity" type" etc. of the #oods to be received. . Are competitive bids or price +uotation obtained for purc'ases

goods and services? (btainin# the price 3uotations and competitive bids ascertain that the •

products or services ac3uired are fairly valued. -he $urchasin# personnel should ac3uire this information from biddin# contracts or from price o6erin#s of various vendors. 4t avoids the ris7 of purchasin# items ith un@usti1able prices. endors may char#e unreasonable price for the #oods ithout the company noticin# it. %. Are price lists maintained for repetitive transactions t'at do not

re+uire competitive bids or price +uotations?

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 -he $urchasin# should maintain an updated price list. By maintainin# price lists for items in a repetitive transaction" the Accounts $ayable can already estimate the obli#ation for year>end reportin# purposes. 4n addition" hen the amount in the supplier/s invoice varies materially ith that of the estimation throu#h the price list" the discrepancy ill easily be detected and investi#ated. -his ill prevent the vendors from

overpricin#. 5. Are purc'ases transactions revie$ed periodically by personnel

independent of *urc'asing? $ersonnel independent of $urchasin# should be the one to revie •

purchases transactions by periodically chec7in# the purchase orders and comparin# them to the purchase re3uisitions. -his should be done to ensure that the items purchased are the ones bein# re3uisitioned and are accurate. 4t also detects if there are purchases that are not for the company/s use but rather for personal use. ,. Are copies of purc'ase orders for$arded to t'e re+uisitioning

department and to t'e Receiving and Accounts *ayable? A copy of the purchase order should be sent from the $urchasin# to the •

re3uisitionin# department to ascertain that the items ordered are the ones bein# re3uisitioned. 4n addition" a copy is sent to the Accounts $ayable for 1lin# temporarily in the A$ pendin# 1le and a copy is sent to the ?eceivin#" here it is held until the inventory arrives to be used

-. Are

for the comparison of the items in the $( to the #oods received. lists of previously aut'oried vendors maintained

by

*urc'asing? •

$urchasin# should maintain a list of valid vendors to reduce certain vendor fraud schemes. Unauthori%ed suppliers may overbill or provide loer 3uantity or feer #oods than a#reed. 4n addition" this ill prevent the orderin# and payin# to the non>e2istin# suppliers.

Receiving 1. Are prenumbered receiving reports prepared for all goods received? $renumbered receivin# reports should be prepared every time •

inventories are received. 4t is prepared by the ?eceivin# personnel ith the supervision of the ?eceivin# supervisor. 4t should indicate the

description of #oods" the 3uantity received" the date the #oods ere received and other relevant data and it should be si#ned by the personnel ho received the #oods. -hese should be used and accounted for to determine that a liability is recorded for all #oods received. 4f the obli#ations are not properly accounted" there is a possibility that payment ill be delayed and credit standin# ill su6er resultin# to a loer credit limit and lo priority of supplies hen there is scarcity. -hese receivin# reports ill also be used as 7ey source documents for the revie and comparison before the 1rm reco#ni%es an obli#ation. 2. !s a receiving log maintained for all receiving reports processed? A lo# should be maintained by ?eceivin# personnel for all receivin# •

reports processed to create an audit trail. -he lo# ill help in determinin# the completeness of the transactions processed. ithout it" missin# receivin# reports or double processin# of the documents ill be hardly detected. . Are all received goods inspected" counted and compared $it' copies

of purc'ase orders? Shipments that are short or contain dama#ed or incorrect items must •

be detected before the 1rm accepts and places the #oods in inventory.  -his may be due to the vendor/s ne#li#ence or fraud schemes. -here are sometimes shippin# inconveniences or theft hich results to the delivery of feer or dama#ed #oods. Some companies even send to the ?eceivin# a blind copy of the $( to force the receivin# cler7 to

%. Are

count and inspect inventories. Receiving personnel independent

of *urc'asing"

Accounts

*ayable and Cas' /isbursements? •

?eceivin#" $urchasin#" Accounts $ayable and Cash Disbursement are incompatible functions. 4f these functions are not independent to each other" the ?eceivin# personnel can purchase to non>e2istin# vendor creatin# a purchase order" ithout receivin# reports indicatin# that inventories have been received" he can establish a liability and issue chec7 for his on bene1t.

Cas' /isbursements and Recording

1. Are vouc'er pac)ages revie$ed before being approved for payment? A voucher is a prenumbered document to establish a formal means of  •

recordin# and controllin# ac3uisitions prepared by a payables cler7 for each payment. oucher pac7a#es should be revieed and one ay is the three ay matchin# F the reconciliation of the supplier/s invoice 9indicates the description and 3uantity of #oods received" price" includin# frei#ht" cash discount terms and date of billin#" the receivin# report and the purchase order. -his veri1es that hat as ordered as received

and

is

fairly

priced.

Moreover"

it

prevents

the

misappropriation of #oods purchased. 4ne6ective controls of matchin# may result to the payment of #oods hich are ordered but not received due to shippin# disruptions perhaps or theft. 2. Are steps ta)en to assure t'at unfamiliar payees 0vendors are bona

de? •

 -he suppliers hom the company orders should be only the authori%ed ones. Unfamiliar payees are suspicious and therefore should be veri1ed by a Cash Disbursement personnel in coordination ith the $urchasin# ho has the list of the valid vendors before authori%in# payment.  -hese vendors mi#ht @ust be dummies for fraudulent underta7in#s. -he $urchasin# should ac3uire the vendor/s information li7e their pro1le" Articles of 4ncorporation and the li7e" annual reports" the #eneral

information sheet or etc. . Are vouc'er pac)ages and c'ec)s revie$s by signatories before t'ey

sign c'ec)s 0or before submitting vouc'ers for c'ec) preparation?  -he cler7 ho receives the voucher pac7ets should revie the •

documents for completeness and clerical accuracy. -his ill miti#ate the threat of payment of incorrect amount. An inaccurate payment may lead to a purchase discount loss if the payment is short and an opportunity cost for the e2cess payment that should have been used for #eneration of more pro1ts. %. Are vouc'er pac)ages canceled $'en or immediately after c'ec)s

are signed? hen an invoice is received" the purchase is recorded. Sometimes" the •

vendor sends a duplicate invoice. -o prevent the recordin# a#ain of  this invoice as a purchase and the double payment of the accounts payable" voucher pac7a#es should be properly revieed and cancelled

after chec7s are si#ned throu#h mar7in# them paidH or ritin# the date and number of the chec7 on the documents. -his is done by the chec7 si#ner. All chec7s are recorded in the company/s chec7 disbursement @ournal hen they are issued. -his @ournal is a list of the chec7s paid to the various suppliers and other creditors and individuals doin# business in the company. 5. Are signed c'ec)s delivered directly to t'e mail room $it'out

intervention by ot'er personnel? Chec7s0cash are the most li3uid assets. 4t has a very hi#h ris7 of theft. •

ith this re#ard" si#ned chec7s should be delivered directly by the  -reasury personnel to the mail room ithout intervention by other personnel. -he asset misappropriation type of fraud 9#enerally perpetrated by employees is almost alays associated ith the cash comin# in and #oin# out of the business. -herefore" the positions that the employees hold alon# the trail of cash are 7ey positions and critical control points to prevent and detect fraud. -hat is hy it is important that before puttin# a person in these positions" the uman ?esource personnel should consider runnin# a bac7#round chec7 or other means of ensurin# the inte#rity of that person on the cash path. ,. Are Cas' /isbursements personnel 0e.g. reasury department

independent of *urc'asing" Receiving and Accounts *ayable?  -reasury" $urchasin#" ?eceivin# and Accounts payable are also •

incompatible functions. CA?E F Custody" Authori%ation" ?ecordin#" and E2ecution should be performed by di6erent individuals.

Cash

Disbursement personnel should never #et involved ith these other functions to prevent inappropriate recordin# of a purchase or disbursement. ithout proper se#re#ation of duties" he can prepare purchase orders to non>e2istin# vendors" prepare receivin# reports" records liabilities and prepares chec7s as if #oods have been received.  -hus" independence reduces the threat of preparin# chec7s for the  -reasury personnel himself and recordin# it as if it is paid to the supplier. -. !s account distribution indicated on t'e purc'ase re+uisition by t'e

re+uisitioning department?

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 -he personnel from the operatin# departments or other departments that initiate the re3uisition of items should clearly identify in the purchase re3uisition the department here the re3uisition comes from.  -his

promotes

accountability

amon#

the

departments

of

the

or#ani%ation because re3uests can be properly traced. -he use of  supplies can be easily monitored and a more accurate allocation of  costs is enhanced. 8. Are vouc'ers prepared from re+uisitions and purc'ase orders

received from *urc'asing" from receiving reports received from Receiving and from invoices received from t'e mail room? ouchers from source documents 9purchase orders" receivin# reports" •

and supplier/s invoice must be prepared all the time by the $ayables cler7 for proper documentation and enhanced audit trail. -hese ill also be used to for reviein# before the payment to the suppliers. ithout these" there mi#ht be incorrect or inaccuracy of the amount of  payment. 3. Are daily summaries of processed vouc'ers for$arded by Accounts

*ayable to 4eneral Accounting for summary entries? General ed#er should alays be updated by the General ed#er cler7. •

 -hus" Accounts $ayable should send summaries of processed vouchers on a daily basis. ;or decision>ma7in# processes" 1nancial information should be timely. 4f the #eneral led#er is outdated" this may mislead the users of information. Moreover" it should alays be updated for the reconciliation of amounts. -he General ed#er plays a very critical role in producin# statements and other reports" entries to the #eneral led#er present a si#ni1cant fraud ris7. ;rom an internal perspective" inspection of the @ournal entries should be stron# and 1rmly in place. ;rom the fraud audit ob@ective" inspection of the @ournal entries can be an e6ective techni3ue for detectin# frauds.

*ersonnel and *ayroll 1. Are

all

employee

c'anges



'iring"

promotions"

transfers"

terminations  approved by operating department supervisors and by t'e *ersonnel department? (perations supervisors and $ersonnel department ocials should •

authori%e employee chan#es" particularly the addition of an employee to the payroll or any chan#es in employees/ status such as promotion" termination and pay rates.

Authori%ations for employment provide

evidence that employees or7 for the entity and authori%ations for pay •

or pay chan#es provide evidence that pay rate is approved.  -his control is to prevent fraudulent updates on personnel records such as the insertion of a non>e2istin# employee so that the perpetrator may later on receive the pay for such 1ctitious employee or the

unauthori%ed chan#e in an employee/s status so that he or she may receive a hi#her pay rate. 2. Are all employee c'anges documented in personnel records?  -he $ersonnel department should update personnel records ith •

chan#es in status and pay rates. $ersonnel records should contain employee/s data such as the date of employment" rates of pay" authori%ed deductions" performance appraisal and termination of  •

employment" etc. ithout updatin# the personnel records" there can be misappropriation of assets throu#h the continued reco#nition of a terminated employee

for hom a paychec7 is subse3uently issued. . Are all employee c'anges communicated promptly to t'e *ayroll

department? ;or every employee chan#e" the $ersonnel department should update •

the current listin# of employees and pay rates hich" to#ether ith the time cards" compose the basis of the $ayroll department in preparin# the payroll. %. /o employee personnel

records include

aut'oriations for

all

deductions and $it''oldings? Employees should si#n a deduction authori%ation form to authori%e •

their employer to ithhold ta2es and various optional payments from their paychec7. -here should be authori%ation so that there may be no improper deductions and ithholdin#s from the employees/ a#es and salaries" deprivin# them of their ri#ht to a fare amount of salaries and a#es. 5. Are guidelines establis'ed for determining account distribution for

labor c'arges? A chart of account should be used in assi#nin# codes for labor char#es •

to be reected in the labor distribution @ournal. Salaries and a#es should be allocated to particular accounts such as or7>in>$rocess •

account for direct labor and ;actory (verhead for indirect labor. Misclassi1cation and allocation of labor cost may lead to a material misstatement of net income. abor char#es that should be classi1ed as periodic costs should be recorded under an e2pense account and not included in the inventory since that ould be tantamount to fraud

hen done ith the intention to boost net income by forestallin# the reco#nition of e2penses. ,. Are employees $'o prepare or process payroll independent of 'iring

and terminations and e#cluded from distributing payc'ec)s to employees?  -here should be se#re#ation of duties beteen these three functions •

so as to prevent the fraudulent preparation of payroll and the subse3uent embe%%lement of company funds based on such fraudulent •

payroll. -he (perations and $ersonnel departments should be the one responsible for hirin# and terminations" the $ayroll department for preparin# and processin# the payroll and the -reasurer for distributin#

paychec7s to employees. -. !s payroll approved by a responsible o6cial independent of payroll

preparation and processing?  -ypically" from the $ayroll department" the payroll summary and •

paychec7s are forarded to the -reasurer ho should revie the details of the payroll. (nce the payroll is ascertained to be accurate and reasonable" the -reasurer si#ns the chec7s and another employee distributes them. (therise" the -reasurer should address 3uestions re#ardin# the payroll to the $ayroll department and further investi#ate matters. -his control serves as a chec7 on the $ayroll department in order to prevent the misappropriation of assets based on a fraudulent preparation of payroll. 8. !s t'e preparation of employee time records supervised to assure

t'at 'ours reported are accurate? Supervisors should approve time records prepared by employees to •

ensure that the hours reported reect the actual hours that the employees spent on or7in#. -his is to prevent employees from •

overstatin# their hours in order to receive a hi#her pay.
Cas' /isbursement 1. Are

payc'ec)s

distributed

by

personnel

*ersonnel and *ayroll departments?

independent

of

t'e

•

 -he -reasury department should distribute the paychec7s. -here should be se#re#ation of duties beteen the $ersonnel" $ayroll and  -reasury departments because otherise" embe%%lin# company funds ill be very easy. All the perpetrators need to do is prepare a fraudulent payroll based on a fraudulent listin# of employees and pay

rates and then distribute the paychec7s to themselves. 2. !s t'e payroll ban) account reconciled mont'ly by an employee

independent of payroll preparation" processing" and distribution? $ayroll ban7 account reconciliation involves comparin# the the #eneral •

led#er payroll account balance to the ban7 statement. -his should be done by any responsible and competent employee not ta7in# part in •

the payroll cycle.  -he di6erence beteen the ban7 and boo7 balances may be due to outstandin# chec7s" timin# di6erences beteen the accountin# month and the ban7 statement endin# date" errors on the part of either

•

parties" or fraud. A possible fraud that can be uncovered by the payroll ban7 account reconciliation is the issuance of paychec7s hich are not supported by the payroll. -his fraud may be done by an employee ho has both the

responsibilities of preparin# paychec7s and si#nin# them. . Are employees re+uired to provide identication before receiving a

payc'ec)? 4n distributin# chec7s" the -reasury department should re3uire •

employees to present their company 4.D./s or other means of  identi1cation in order to prevent handin# chec7s to persons ho are not entitled to receive them. -he employee distributin# the chec7s should also compare the amount of the paychec7 ith the payroll  @ournal and should re3uire employees to si#n the receipt. %. Are unclaimed payc'ec)s returned to an employee independent of 

payroll preparation" processing and distribution? Unclaimed paychec7s should not be retained by employees involved in •

the payroll preparation" processin# and distribution since these unclaimed paychec7s may be the result of anomalies in these functions.

*roduction7Conversion #ecuting 1. Are production orders prenumbered and t'e numerical se+uence c'ec)ed for missing document? $roduction should only be initiated upon receipt of authori%ed •

prenumbered production orders to 7eep trac7 of the commencement of 

the production process and to ensure that no inventories are not •

unnecessarily produced and stored for a lon# period of time. $roduction orders are #enerated and entered into the production process in the order in hich production activities are forecasted and inte#rated into the production master schedule. $roduction $lannin# and Control Department must create the production schedule by ade3uately considerin# the Sales ;orecast ?eport from Mar7etin# Department" Bill of Materials 9specifyin# the type and 3uantity of ra materials and subassemblies re3uired to produce a sin#le 1nished product from the

•

En#ineerin#

department and

the

$roduction

department5s internally #enerated 4nventory Status ?eport. 4t is important that production orders be prenumbered so that #oods that should have been produced 1rst ill already be available for sale so that any abnormal delays and interruptions durin# the production

process can be detected and ta7en corrective action of. 2. Are production orders prepared by aut'oried persons? Since production employs numerous company assets" production •

orders must only ori#inate from authori%ed persons. -hese persons must be the 3uali1ed" competent and honest personnel of the $roduction $lannin# = Control Department or if the company is lar#e" •

this must refer to the ead or Mana#er of the said department. 4f production orders do not ori#inate from authori%ed persons" thus no production should be e2pected for the relevant time period" and yet or7 centers have been busy producin# for the unauthori%ed or7 orders" stora#e and other costs of inventories ill unnecessarily #o up tyin# up company5s cash. Also" since production orders inte#rate sales forecast" inventory status report and bill of materials" unauthori%ed commencement of production mi#ht cause disinte#ration and lac7 of  coordination beteen or7 centers due to inappropriate or lac7in#

reports. . Are bills of materials and manpo$er needs forms prepared by

aut'oried persons? Bills of materials and manpoer needs must come from the •

En#ineerin# department ho is in the best position to 7no the con1#uration of a product and the time and labor demanded for the completion of a sin#le product. -hese are very important documents to

consider

before

$roduction

$lannin#

=

Control

#enerates

the

production schedule for a particular period. Considerin# this" the said reports must only come from authori%ed and competent personnel otherise ineciencies" suboptimal product 3uality and abnormal losses mi#ht be sustained by the company durin# the production process. %. Are bills of materials and manpo$er needs forms prenumbered and

t'e numerical se+uence c'ec)ed for missing document? ;or a company producin# homo#eneous products" hose sales are •

relatively stable" and ho employs process costin#" bills of materials and manpoer needs for each month or each batch of product do not di6er si#ni1cantly from that of the others. But for purposes of  monitorin# the •

pro#ress

of production"

these

documents

must

nevertheless be prenumbered. A problem arises hen hetero#eneous products are created for a period and @ob>order costin# is employed. -hese source documents become more crucial in the completion of the production process and

•

product costin#. ;or instance" hen a customer orders a number of products" production must be started as soon as possible. -he types and 3uantity of ra materials and labor hours and costs re3uired to complete one product must #uide the production of #oods. 4f these ere not prenumbered" chances are or7 centers ill or7 on the recent sales orders and ne#lect the earlier ones or @ust arbitrarily start any or7 they deem proper for them ithout any re#ard on customer aitin# time. or7 may thus be done ithout any supportin# reports and

documents because anyay these are not prenumbered. 5. Are issue slips prenumbered and t'e numerical se+uence c'ec)ed

for missing document? 4f there are missin# issue slips" it may imply that some of the materials •

issued ere not used for production. Employees may have embe%%led some of the materials. Chec7in# for missin# issue slips is for the assurance that all ra materials issued are put into production. ,. Are material re+uisition and 9ob time tic)ets revie$ed by t'e

production supervisor after t'e foreman prepares t'em?

•

Material re3uisition must be authori%ed by the supervisor before it is sent to the arehouse to ensure that the items re3uisitioned are accurate as to their 3uality and 3uantity. 4f the materials are incorrect or lac7in#" it ill delay and disrupt the production hich mi#ht result to customer dissatisfaction and lost sales. -he @ob time tic7ets as ell bearin# si#natures to indicate that or7 as actually performed have to be revieed because these ill be the basis for recordin# labor. -he

foreman mi#ht have prepared overstated @ob time tic7ets. -. Are t'e $ee)ly materialsused reports and direct labor revie$ed by

t'e production supervisor after preparation for t'e foreman?  -he supervisor has to revie reports for the materials used and direct •

labor

prepared

ee7ly

for

accuracy.

4f

these

are

materially

understated" the cost of #oods sold is understated hich results to the overstatement of net income and vice versa. Moreover" hen the company is implementin# cost>based pricin# hen the cost of #oods sold are understated creatin# to unreasonable prices" the customers mi#ht be discoura#ed to buy the products. 8. Are completed production reports prepared? $roduction reports are needed for the costin# and pricin# of products. •

4f these are not prepared" 1nished #oods may not be properly accounted and ill be seen as an opportunity for the employees to commit fraud throu#h stealin# or embe%%lement of #oods. 4t ill not be easily detected if there are no reports to sho the 3uantity and cost of  the #oods manufactured. 3. !s a +uality control report issued on nis'ed $or)? Iuality inspections should be conducted on 1nished or7 before •

proceedin# to the ne2t step in the production process.

ithout a

3uality inspection" defective outputs or outputs of inferior 3uality ill be forarded to the ne2t or7station. Until the inferiority in 3uality is detected" si#ni1cant resources ill be asted on units hich in the

1:. •

end" may have no value at all due to their defects. /o routing tic)ets accompany t'e transfer of goods? ?outin# tic7ets contain an ordered list of tas7s to be completed thus they serve as a map as to here the #oods should be transferred ne2t for further processin#. ?outin# tic7ets should accompany #oods as they

are bein# transferred so that transferees may 7no hich tas7s have been completed and hich tas7s are yet to be done. !s receipt obtained from transferee $'en

11.

goods

are

transferred? •

?eceipt should be obtained from the transferee in order to establish accountability on the #oods should they become impaired or lost. ?eceipt from the transferee serve as evidence that the #oods have reached him or her and that he or she is responsible for them.

Recording 1. Are standard costs used? !f so" are t'ey revie$ed and revised periodically? Standard costs re3uire continuous revie and should be chan#ed to •

reect any chan#es in underlyin# conditions such as the material and labor types" 3uantities" prices and or#ani%ational overhead. Standard costs should be revieed and revised to ensure that they are appropriate" attainable and in accordance ith the company/s cost •

ob@ective. Standard costs are typically established by a #roup of e2perts composed of en#ineers" C$A/s and other representatives from cost accountin#" mar7etin# and mana#ement e2perts" etc.

2. /oes

t'e

accounting

manual

give

instructions

for

proper

classication of cost accounting transactions? •

 -he accountin# manual should indicate hat account should be used in recordin# the di6erent costs incurred in the production in order to avoid capitali%in# the cost that should be e2pense and recordin# in the e2pense account the amount that should be capitali%ed.

. Are summary entries for direct materials and direct labor revie$ed and approved by t'e cost accounting supervisor? •

 -he amount of direct material and direct labor in the summary of  entries should reconcile in that of the cost sheet" so the accountin# supervisor upon reviein# and approvin# of the summary should see to it that the amount matches. -his is to ensure that there is no over or under application of direct labor and direct materials.

%. !s t'ere verication of correct application of over'ead 9ob cost s'eet? •

 -he overhead assi#ned costs should match ith the underlyin# schedules to verify the correctness of overhead @ob cost sheet. -his ill avoid over or under valuation of overhead.

5. !s t'ere segregation of functions bet$een general accounting and cost accounting? •

Se#re#ation of functions beteen #eneral and cost accountin# should be done in order to have a reconciliation of the account balances recorded by the cost accountin# and #eneral accountin# otherise there mi#ht be a possibility of disa#reement of subsidiary inventory and overhead led#ers to controllin# accounts on re#ular basis.

Custody 1. !s $or) in process tagged during production?  -his is to prevent the loss of the or7>in>process inventories hile they are on the process of convertin# to 1nished #oods. 2. Are nis'ed goods in loc)ed $are'ouses? Since the #oods here in this sta#e are already mar7etable" there/s a •

#reater chance for theft. Storin# the #oods in loc7ed arehouses prevents this untoard incident from happenin#. . Are perpetual nis'ed goods records periodically compared $it'

goods on 'and?  -his is done to ascertain that the 1nished #oods recorded actually •

e2ists and in a #ood and saleable condition.

!nvesting 1. Are detailed records maintained for eac' class of #ed assets 0e.g." land" buildings" mac'inery" and e+uipment? Detailed records should be maintained by the company for each class •

of 12ed assets in order to identify hat are the 12ed assets of the company and hether those 12ed assets really e2ists. 2. !s responsibility for maintaining #ed asset records segregated from

general accounting? 4t ould be prone to theft and misappropriation if the to tas7s are •

#iven to the same person. . Are detailed records reconciled periodically $it' general ledger

control accounts?  -his is to verify hether there are certain transactions that have been •

recorded or omitted in the boo7 of records or #eneral led#er. %. Are procedures follo$ed to determine $'et'er recorded #ed assets

actually e#ist? 4t ould detect hether the company is overstatin# their 12ed assets •

and also identi1cation of those that have already been e2hausted by the company but still recorded as 12ed asset. 5. !s access to and t'e use of #ed assets restricted to aut'oried

personnel?  -his is to prevent misuse of the 12ed assets and to ensure that they •

are bein# used in accordance ith the or#ani%ation/s policies and business practices. ,. !s insurance coverage maintained and revie$ed for all #ed assets?  -o monitor the correctness of the amount bein# reco#ni%ed for the •

insurance covera#e in order to prevent overstatement of insurance e2pense. -. Are #ed assets p'ysically safeguarded from deterioration and

t'eft?  -his is to prevent theft from occurrin# because if the assets that are •

deteriorated already are not se#re#ated from those that are not" mista7e or unintentional removin# of 12ed assets that have not been deteriorated ould be possible.

Additions 1. /o procedures re+uire aut'oriation by t'e board of directors or senior management for #ed asset addition? Since bi# amounts are concerned in purchasin# •

12ed assets"

authori%ation is a #ood control so that the money ill not be easily used for fraud or ill not be s3uandered. 2. Are actual e#penditures for #ed assets compared $it' amounts

aut'oried? ere" an ocer ill be identi1ed hether he is folloin# the rules of  •

the company and it ould prevent invalid or fraudulent transactions. 4t ill also" ensure that the amounts used for purchased are the authori%ed amounts. . Are procedures establis'ed to assure t'at #ed assets purc'ased

are delivered in accordance $it' orders placed?  -his is to ensure that hat have been delivered are the ones bein# •

ordered to avoid ma7in# payments for the unneeded 12ed assets. %. Are #ed asset additions promptly recorded in #ed asset records? 4n order" to account for all additions in the 12ed asset" records should •

be chec7 to ma7e sure those additions has been recorded and also to avoid misclassi1cation of asset. 5. Are #ed asset additions promptly recorded to 4eneral Accounting?  -his is to ma7e sure that the General Accountin# is updated. ,. Are insurance companies notied of #ed asset additions in order to •

increase insurance coverage?  -his is to assure that the additions are bein# covered also in the •

insurance policy so that the records of those in the insurance company and the company itself ould match. construction in progress$'et'er

-. !s

internally

or

e#ternally

contractedaut'oried and periodically inspected?  -his is to ensure reco#nition of cost and revenue of the pro@ect and to •

avoid fraudulent transaction throu#h manipulation of amounts bein# reco#ni%ed.

/isposals and Retirements 1. /o procedures re+uire aut'oriation by t'e board of directors or senior management for #ed asset disposals and retirements?

•

 -o ensure that only assets ith value e3ual to its salva#e value or those assets that has been fully depreciated throu#h the years has

been disposed" authori%ation from the B(D/s is necessary. 2. Are procedures establis'ed to assure t'at t'e proceeds from #ed

asset disposals are recorded properly and deposited?  -o avoid theft and misappropriation of assets procedures should be •

established to assure the recordin#s of proceeds from 12ed assets disposals. . Are #ed asset disposals and retirements promptly recorded in #ed

asset records? $romptly recordin# of 12ed assets disposals and retirements is •

important so that records are updated and disposals and retirements are accounted for. %. Are #ed asset disposals and retirements promptly reported to

4eneral Accounting for recording gains or losses? 4t should be noted that #ains or losses should be promptly and properly •

recorded and accounted for as #ains or losses and not put into other account to assure that they are properly accounted for. 5. Are insurance companies notied of disposals and retirements to

assure t'at insurance coverage is altered accordingly? 4nsurance companies should be noti1ed of disposals and retirements so •

as to stop those assets from bein# insured and also so that insurance companies ill not alle#ed that they have no 7noled#e about the matter and therefore they are not at fault.

/epreciation 1. Are procedures establis'ed to assure t'at additions are added to depreciation records and t'at disposals7retirements are deleted?  -o avoid improper accountin# for the depreciation of the additions and •

deletions

of

disposal0retirement

proper

procedures

should

be

established. 2. Are procedures establis'ed to assure t'at assets actually in service

during t'e period?  -his is to ensure assets that have been recorded at the time bein# •

e2ist durin# the actual period in service. . Are procedures establis'ed for determining depreciation met'ods"

estimated useful lives" and salvage value?

•

 -o properly account for depreciation" estimated useful lives and salva#e value" procedures are established. -his is also to ma7e sure that the depreciation method the company is usin# is appropriate and that there is proper valuation of salva#e value.

;inancing !<=&><& Custody" Recording and =aluation 1 Are securities and ot'er negotiable instruments in t'e custody of  an independent custodian? !f not" are t'ey ade+uately secured 0e.g. loc)ed in a safe?  -his is done to safe#uard the documents evidencin# e3uity •

securities from loss due 1res" ood and other fortuitous events as ell as loss due to theft and employee fraud. 2 Are at least t$o o6cials responsible for internally 'eld securities?  -his is to provide for balance and chec7s for the custody of  •

internally held securities. -his provides for added supervision and •

control a#ainst misappropriation or fraud. Control $oint: o Access to safe>deposit bo2 re3uires the presence of more

than one employee  !s a detailed record of securities maintained by an o6cial

independent of o6cials responsible for custody?  -his is in accordance ith the se#re#ation of dutiesH principle of  internal control" herein recordin# should be separate from the custody

of

assets.

-his

is

to

prevent

the

manipulation0misappropriation or loss of the securities and the subse3uent concealment of the fraud throu#h the tamperin# of the records. Control $oint: o 4nspection of the actual securities on hand o Matchin# of the physical assets 9i.e. share certi1cates to records

% !s

t'e

listing

of

investments

periodically

reconciled

$it'

investment records?  -his is to ensure that the transactions that have occurred match those that are recorded. -his is also done to ensure that recorded investments are properly valued. Control $oint: o Matchin# of the listin# of investments and the investment subsidiary led#er. o Any discrepancy should merit further investi#ation. 5 Are securities in t'e name of t'e client 0or restrictively endorsed

in t'e name of t'e client?  -his is to ascertain that the client is the ri#htful oner of the securities. Control $oint: o erify if the name re#istered in the stoc7 re#ister boo7s and transfer boo7s is of the client/s. , Are independent o6cials responsible for revie$ing and reporting

c'anging securities values?  -his is to con1rm that the values reported are accurate and are ob@ectively recorded. Control $oints: o  -imely communication of need for estimate or chan#e of 

o

estimates Sucient amount of data to support estimates or chan#e  -he ocial desi#nated should be a 3uali1ed and e2perienced

o

personnel ?evie and approval of proposed chan#e of accoutni#n

o

estimates re#ardin# securities/ values Comparison to actual mar7et price o o Compare ith plans and 1nancial forecasts - Are ade+uately detailed investment records and general ledger

control

accounts

maintained

for

t'e

various

investment

classications?  -his is done to closely monitor the transactions involvin# the •

•

di6erent classes of investments. Control $oint: o Ascertain that each ma@or

classi1cation

of investment

arrants a separate subsidiary led#er here transactions of  the same and recurrin# nature are re#ularly recorded.

o

;oot and cross>foot to chec7 for accuracy and match ith their respective #eneral led#er control accounts.

Ac+uisitions" &ales and !ncome

1 Are ac+uisitions and sales of investment securities aut'oried by t'e

board

of

directors

or

a

duly

aut'oried

investment

committee?  -his is to con1rm the validity of the corporate act 9i.e. ac3uisition and sale. Control $oint: every corporate act to the Minutes of Board of  o  -race Directors/ meetin#s. 2 Are bro)ers" custodians" or ot'er intermediaries aut'oried or

designated by t'e board of directors?  -his is to validate that the persons involved and ho has control" custody or possession over the securities have the necessary 3uali1cations and are orthy enou#h for the assumption of certain si#ni1cant responsibilities for the company. Control $oint: o Conduct a bac7#round chec7 on 3uali1cations

 Are

of

the

appointed

the

bro7er"

intermediary.  -race authori%ations to B(D/s meetin#s o bro)ers advices promptly compared $it'

professional custodian

or

documented

ac+uisition and sales aut'oriations?  -his is accomplished to chec7 that the bro7er only did hat ere •

stated in the ac3uisition and sales authori%ations. -his is also done to chec7 the reasonableness of the prices of securities bou#ht •

throu#h the bro7er. Control $oints: o $urchases of investments: E2amine B(A?D M4




?EC(?DS" and B(A?D M4
?ECE4$-S



?ead minutes for sales of 4nvestments and trace to

recordin# % !s an independent c'ec) made to determine $'et'er ac+uisition

or sales prices are fair and ob9ective?  -his is to verify if the securities are bou#ht or sold at a price hich is not disadvanta#eous to the company. Control $oint: o ?efer prices to prices of similar securities traded in an active

o

mar7et 9i.e. $hilippine Stoc7 E2chan#e Consult securities/ appraisers 4n3uire mana#ement for lar#e di6erences in sale prices on

o

sales of securities  -race proceeds of sale of securities to the cash receipts

o

o o

 @ournal and to deposit slips. Ma7e sure that cash receipts from (btain con1rmation from 1nancial

intermediaries

0

underriters re#ardin# the amount of proceeds reali%ed from the sale.

5 !s investment

income 0e.g.

interest"

dividends

periodically

recalculated and veried?  -his is to verify the correctness of the amount recorded as investment income. 4n practice" certain miscalculations may happen due to mista7e0error or mere incompetence of the accountin# sta6  hich ould necessitate recalculation of the recorded investment income. Control $oints: o ?ecalculate investment income and compare ith the client/s o

o

#eneral led#er control account.  -race cash receipts to cash receipts @ournal and to deposit slips. Cash receipts must be deposited intact.

/( 1 Are all longterm debt and ot'er borro$ings aut'oried by t'e board of directors?  -his is to con1rm the validity of the corporate act 9i.e. lon#>term borroin#s and other borroin#s. -his is also done to ascertain the

ri#hts and obli#ations of the client pertainin# to those debt covenants. Control $oints: o ouch authori%ations to minutes of B(D/s meetin#. 2 !s an o6cer responsible for determining $'et'er all debt

covenants are complied $it'?  -his is done to enforce accountability for the compliance of debt covenants. Control $oints: o Calculate ratios and balances re3uired by debt covenants 4nspect loan a#reements o o Consider G(4
 Are unissued bonds and notes prenumbered consecutively and controlled by an o6cial independent of recording?  -his is to ob@ectively account for the se3uence and completeness of  •

•

unissued bonds and notes. Control $oint: o Account for the numerical se3uence of unissued bonds and o

%

notes Consult the person accountable for the bond or note and

in3uire on the missin# bonds or notes. Are all retired debt instruments cancelled or destroyed?  -his is to prevent unauthori%ed reissuance of cancelled debt

•

instruments by unauthori%ed parties. Control $oints: o Cancellation of debt instruments separate from accountin# 5 Are ade+uately detailed bond and note registers and general •

ledger accounts maintained for t'e various debt classications?  -his is done to closely monitor the transactions involvin# the di6erent classes of bonds and notes and to provide for an audit trail. Control $oints: o E2amination of due dates to ensure proper classi1cation , Are interest payments and accruals periodically recalculated?  -his is to verify the correctness of the amount recorded as interest e2pense

and

miscalculations

accrued may

interest

happen

payable.

due

to

4n

practice"

mista7e0error

certain

or

mere

incompetence of the accountin# sta6 hich ould necessitate recalculation of interest e2pense and accrued interest payable.

Control *oint@ o Unusual amounts of interest e2pense o

ar#e outo of cash durin# the year

B!  1 Are

all

capital

stoc)

issuances"

retirements"

and

dividend

distributions aut'oried by t'e board of directors?  -his is done to ascertain the e2istence and validity of capital stoc7 •

•

issuances" retirements" and dividend distributions. Control $oints: o  -ransactions must be consistent ith the client5s A?-4CES

(; 4las o o minutes for provisions relatin# to capital stoc7 2 Are capital stoc) transactions aut'oried by stoc)'older vote" •

$'ere re+uired by state la$?  -his is done to ascertain the e2istence and validity of capital stoc7 issuances" retirements" and dividend distributions. Control $oint: o Approval of stoc7 and dividend transaction only if in compliance 0 corporate charter0by>las  Are unissued stoc) certicates prenumbered consecutively and

safeguarded?  -his is to ob@ectively account for the se3uence and completeness of  •

unissued bonds and notes as ell as to secure the certi1cated from •

unauthori%ed transfers. Control $oint: o Account for the numerical se3uence of unissued stoc7 o

certi1cates. Consult the person accountable for the unissued stoc7

certi1cates and in3uire on the missin# ones. % Are independent registrars and transfers agents aut'oried by

t'e board of directors?  -his is to determine the de#ree of involvement and accountability •

as ell as the validity of the act done by those independent

re#istrars and transfers a#ents ith re#ards to the securities that •

they hold on behalf of the company. Control $oint: o Con1rmation of certi1cates issued and outstandin# ith the

re#istrar0a#ent o Con1rmation of activities and balances 5 Are detailed capital stoc) records suc' as a stoc)'olders ledger"

transfer 9ournal" certicate control records" and general ledger control

accounts

maintained

for

t'e

various

capital

stoc) 

classications?  -his is done to closely monitor the transactions involvin# the di6erent classes of investments and to provide for an audit trail. Control $oint: o Detailed shareholder records separate from G0 and cash

, Are

handlin# detailed capital

stoc)

records

maintained

by

o6cials

independent of t'e custody of t'e securities?  -his is in accordance ith the se#re#ation of dutiesH principle of  internal control" herein recordin# should be separate from the custody

of

assets.

-his

is

to

prevent

the

manipulation0misappropriation or loss of the securities and the subse3uent concealment of the fraud throu#h the tamperin# of the capital stoc7 records. - Are treasury s'ares ade+uately controlled and accounted for?  -his is done to ascertain the completeness and the proper valuation •

•

of these treasury stoc7s. Control $oint: o Ascertain that disbursements for ac3uisitions of treasury o

shares are duly recorded in the disbursement @ournals. Consult the independent security custodian0person

accountable for the shareholder accounts. 8 Are procedures establis'ed to assure t'at t'e entity is complying

$it' stoc) e#c'ange and securities la$?  -his is in accordance ith the se#re#ation of dutiesH principle of  internal control" herein recordin# should be separate from the custody

of

assets.

-his

is

to

prevent

the

manipulation0misappropriation or loss of the securities and the